The fiscal picture is looking bleak for the Jersey City Municipal Utilities Authority, the autonomous agency that oversees the city's water and sewerage systems, and could wind up costing the city $10 million this year.

Each year the MUA - an autonomous agency created in 1997 by combining the city's Water Department with the Sewerage Authority - pays the city a franchise fee. This year's fee was set at $30 million.

But according to Jersey City Business Administrator Brian O'Reilly, the city is not expecting to receive the full amount - which could mean rate hikes for customers.

Instead, the MUA will likely wind up paying only $20 million, O'Reilly said, and as a result, only a $20 million payment has been included in the draft 2005 budget.

The business administrator said the full amount was unrealistic to expect from the financially troubled agency.

"They don't have the money to pay," he said.

The problem, as city officials see it, is that the MUA's franchise agreement with the city anticipates more revenues than the MUA actually collects.

Although the revenue shortfall will not mean a municipal property tax hike this year, water and sewer rate increases may not be far off, officials said.

But even with the MUA's debt to the city put off for the time being - officials said it can be made up in later years - the authority still has another matter hanging over its head: The MUA is in the midst of an ongoing dispute over millions of dollars it is alleged to owe to United Water New Jersey, the company subcontracted to operate the water system.

During Monday night's City Council caucus, council members pushed city administrators for a quick resolution to the dispute.

The MUA pays United Water about $8 million annually to maintain the city's water supply at the Boonton Reservoir and oversee the aqueducts and water mains that carry the water to the meters in individual households.

In addition to the basic operating fee, the MUA also pays United Water in connection with a billing collection incentive agreement, said O'Reilly.

According to that agreement, United Water receives a bonus payment for any water or sewage fees it collects for the city in excess of a baseline amount. The agreement was struck because the MUA has had difficulty collecting from deadbeat customers.

The amount owed under that agreement is a matter of debate, O'Reilly said. United Water believes it is owed about $3.5 million covering the years 2000 to 2002, while the MUA argues that the amount is about $2.2 million.

O'Reilly said BCI fees have continued to accrue since then because the MUA has not made any payments since the dispute emerged and now United Water alleges that it is owed about $6 million.

Councilman Bill Gaughan blamed the MUA for the deadlock, describing the agency as unwilling to cooperate in the negotiations.

"This didn't happen last week, last month or last year. This goes all the way back to 2001," he said. "I don't want to see a suit between United Water and the city if that can be avoided."

Gaughan, along with others on the council, also urged Frank Mangravite, a technical advisor hired by the city to monitor United Water's contract performance, to help resolve the dispute.
Mangravite's contract with the city is expected to be renewed at the council's regular meeting tonight.

The matter between United Water and the MUA took another twist this spring when a forensic accounting report was released alleging that United Water had diverted $1 million in water from Jersey City between 2000 and 2003 without compensating the MUA.

At the time the report was released, United Water spokesman Rich Henning suggested the report may have been motivated by the money owed by the MUA.

Today, city officials are also calling that report flawed but members of Mayor Jerramiah Healy's administration are continuing to broker negotiations over the matter, along with the BCI issue, several sources said.

Healy and several members of his administration did not return telephone calls yesterday.

Henning said some - though not a great deal - of headway had been made during the recent rounds of negotiations.

"We have certainly been working extensively with not just MUA officials, but also with administration officials to educate them about the contract," he said. "There has been some gain made in terms of negotiations with us, the city and the MUA. We certainly feel that's the way to go rather than at this point filing lawsuits."

Maria Zingaro Conte covers Jersey City. She can be reached at mzconte@jjournal.com.